3 Reasons Why Determining a Customer Lifetime Value Matters

3 Reasons Why Determining a Customer Lifetime Value Matters
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Customer Lifetime Value (CLV) might not be a new term to you. Most businesses overlook its importance, but you might give in to competition if you do not calculate it. CLV helps you understand how you’re getting along with the customers. In addition, you’ll understand how consumers perceive your goods and services. It will also help you know what you’re doing wrong and how you can make improvements. Generally, CLV gives an insight into your business data. You can then implement this experience to improve the satisfaction of future clients. But why does it matter anyway? Here are the three reasons you should calculate customer lifetime value.

1- It Influences Profitability

The profits of your business are affected by your total CLV. You will always get a little margin from every sale if conversions are your drive. In addition, you’ll have to pay the cost of acquisition every time if you only rely on new customers. Your profits are hurt in the long run. To optimize your CLV, you need to make the existing customers keep coming back. This way, you’ll not have to spend on them again since you already paid their customer acquisition cost (CAC). As a result, after the first purchase, you’ll always reap a full profit margin on all the sales. It covers the CAC you had already paid, hence a higher return on investment.

2- It Portrays Brand Loyalty

You’ll better understand the performance of your services and goods through CLV. Your lifetime value of your customers is high when your sales are high. Your goods drive more satisfaction when they’re of excellent quality. As a result, customers will keep returning, showing loyalty to your business. In the long run, you’ll experience an improvement in sales. With a high customer lifetime value, you’ll always get funding whenever you approach investors. Therefore, never take CLV for granted. Understandably, not everyone is a mathematics genius. However, you do not need strong mathematics background to calculate CLV. If you still feel you can’t manage, you can hire an analytics company to handle your customer data and advise you accordingly.

3- You Win More Target Customers

After understanding the behavior of your target customers, you can continually re-adjust your CAC budget. For instance, when you realize that a consumer will purchase goods worth $300 instead of $150 from your business for some period, you can allocate a different cost per acquisition to win and retain them. Spending more money to reach the target audience would be wise. There are several reasons why you might experience difficulties winning more customers. For instance, your rivals might be outdoing you in bidding on keywords. Similarly, they might be working with sales teams out of your budget to drive in more prospects. Therefore, if you invest in getting quality leads, you’ll convert them into repeat clients, improving your brand. In the long run, you’ll also have improved your CLV.

Satisfying and retaining customers is correlated with CLV and brand loyalty. Loyal clients will make your business experience tremendous financial performance. A high CLV ensures that your company experiences a stable cash flow hence rapid growth.

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